In 1997, in the period following the end of the Cold War, the US Navy convened a forum on the future of its fleet – it wanted vessels that could go faster, carry heavier loads, manoeuvre better and access shallower water, all with less crew requirements.

Sitting in the audience was a ferry builder from Western Australia.
John Rothwell
believed the lightweight prefabricated aluminium production methods pioneered by Austal could give it an edge.

He took a chance and began the long process to transform the company he’d founded in 1988.

The Jones Act, requiring any ship sailing under the stars and stripes to be built on American soil, posed a regulatory barrier for the Australian shipbuilder. So, in December 1998, Austal raised funds by listing on the Australian Stock Exchange and then in 1999 opened a small shipyard in Mobile, Alabama.

Over the next 12 years, the US arm of the business ran at a loss, with eyes fixed firmly on the prize in the distance. “The strategy was under constant revision," says chief financial officer
Richard Simons
, but Austal never considered pulling out of the US “because it could see the navy was always making moves towards procuring". Producing small commercial vessels for the oil and gas industry as well as inland ferries enabled it to train a local workforce.

Austal had to work hard and smart to reach the point where it was being taken seriously in the same league as industry giant Lockheed Martin. A six-year partnership with an established defence contractor – Bath Iron Works, part of the General Dynamics Group – stopped the smaller, lesser known Aussie being "laughed out of the room", says Simons.

Demonstrating an ability to fund growth was also essential. Tenders included a detailed capital expenditure plan and demonstrated how it could expand its manufacturing capacity.

Chartering a commercial ferry to the US Marines was a key milestone as it enabled the client to trial the technology.

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Finally, in 2010, Austal won its first contract to supply the US Navy and today about 80 per cent of Austal’s business comes from supplying two products to this one client.

A contract for lightweight littoral (close to shore) combat vessels is worth just under $US4 billion. Another contract for lightweight logistics vessels, which can transport an entire battalion and its equipment at 40 knots, is worth about $US1.6 billion. “Those two contracts alone provide enough work out until 2018," Simons says.

Plus, “in its long-range planning, the navy foresees a need for 50 of each type of ship by 2040" and Austal is confident of retaining the contract. In addition, Austal hopes to win further work for the US government’s foreign military equipment scheme providing US-allied nations.

Maintenance contracts alone are a tidy business. Annual upkeep per littoral combat ship is roughly $40 million to ­­$60 million, and $16 million to $24 million per logistics vessel. “At some point Austal will most likely have to compete for that work but nine times out of 10 it’s awarded to the manufacturer", he says.

The US government’s manufacturing and capital investment drive has been an enormous boon to the company’s ability to expand into the US.

Through the Build America bond scheme, it received $US225 million on a 30-year government bond. In the meantime, it only has to make interest payments of less than 2 per cent.

Good local representation is important “and if they look like and speak like Americans that will always help", Simons says. Austal’s US operations have a separate management team (including a local CFO) and board. Simons and CEO Andrew Bellamy make the trip to Alabama five or six times a year.